China's Wenzhou expects substantial financial reforms

HANGZHOU, Jan. 1 (Xinhua) -- A building materials dealer borrowed 260,000 yuan (41,335 U.S. dollars) from a lender at a monthly interest rate of 1.2 percent, much lower than the 4 percent in the past.

This was done via the Wenzhou Private Lending Registration Service Center in Zhejiang Province, an institute founded in April 2012 to regulate the private financing market and promote transparency.

Xu Zhiqian, the center's general manager said, "The transparency of the interest rates in the center lowered the monthly rates which stood at 3 to 4 percent in the underground market to 1.2 to 1.3 percent."

The center has eight companies which work as "go-betweens" for those in need of borrowing and lending, in addition to other services such as legal support.

The State Council, China's cabinet, approved the establishment of a pilot financial reform zone in Wenzhou in March to regulate private financing activities after a crisis broke out in the city in 2011.

In Wenzhou, a large number of small and medium-sized enterprises (SME) used to resort to underground financing as state-owned banks failed to meet their needs.

However, the monthly interest rates, as high as five percent, made some companies unable to return the loans and they went bankrupt due to poor management. Other companies were affected as many of them were loans warrantors for each other.